[Seoul]:Seoul National University(BK 21 Law)

Economy < Economic AdministrationGovernment and Law < Laws and Legislation

Holding

Seoul National University

Abstract

Following a currency crisis in late 1997 which caused widespread corporate failures, Korea enacted a number of legislations to improve the transparency of corporate governance structure. While laudable in their empowerment of minority shareholder rights, such laws nonetheless had a major flaw in that they did not provide countervailing protections for director discretion. Consequently, derivative suits seeking director liability rapidly multiplied, and in several high-profile cases directors were held accountable for enormous sums based on apparently mere errors in judgment. Risk taking is the centerpiece of entrepreneurial capitalism. And directors bear the ultimate managerial authority for the corporation. However, by indiscriminately imposing personal accountability on directors for inherently risky business judgments, the current Korean laws undercut the fundamental purpose of a corporation, which is to maximize profit based on the principle of risk-and-return proportionality. This is worrisome given the current position of Korea in the global economy and its stated goal to upgrade its laws and institutions to a level that will be internationally competitive. As a partial solution to this conundrum, this article proposes the adoption of the business judgment rule as developed in the Anglo-American jurisprudence. In its simplest form, the rule represents the court’s reluctance to second-guess the business decisions of directors, absent loyalty issues. (The rest omitted)